Lisbon. NAMA. The Budget. As the Government and assorted commentators have hammered into people, these are the three big issues that will determine the legacy (and longevity ) of the Fianna Fáil/Green Government and have a massive bearing on the medium to long term future of this country.
Of the three it is undoubtedly NAMA that has dominated public discourse over the last six weeks and, bar a break for the Lisbon referendum, will continue to do so for the next month or two.
While banks of course have never been popular and their customers have long regarded them as something of a necessary evil, criticism from these customers has taken on a far more serious dimension in the last year or so.
If a survey was taken of businesses of all sizes in Galway city for instance, Insider is certain the overwhelming majority of them would report difficulty in accessing finance, even something as elementary as an extension on an overdraft.
All public representatives from across the political spectrum will be acutely aware of this. Indeed we even saw an emotional outburst from Fine Gael Roscommon TD Frank Feighan in the Dáil in June when he explained how his long established family business was on the cusp of going to the wall for want of bank finance.
That ‘something needs to be done’ about this is agreed across the party political divide. Following on the tumultuous events and scandals of last autumn and winter, where Brian Lenihan was forced into a series of fire-fighting exercises, attention turned to a long-term solution to this problem. The result, announced on the day of the Supplementary Budget in April, was NAMA.
Will NAMA work? There are essentially two separate criteria that must be met in order for it to work. The first being that the banks must start lending again and the second being that the State won’t end up realising a massive loss by overpaying for bad loans.
On the first criteria there has to be a good chance that it will have some success. Banks should be in a position within a few weeks of the legislation passing to access €54 billion in cash from the European Central Bank. The banks will then be in a position to earn a margin on these funds by loaning them out to business.
Be warned however, this is no silver bullet. We are in a recession and even had the banking crisis never occurred, the banks would probably have cut back on lending anyway, albeit not to the extent that they have.
On balance though things should improve in this area, in particular as there are tentative and growing signs that the global economy may be showing signs of rebounding. Perhaps NAMA critic Prof Brian Lucey puts it best when he says “ultimately NAMA should work, but at what cost?”
This brings us neatly to the second criteria. Will NAMA end up costing us or will it all work out?
The good news is there is general agreement on the answer to this question. The bad news is that that agreement is that nobody can tell for sure! There are too many variables - the long-term performance of the property market, the general economic climate over the next number of years, the interest rate policy of the ECB for instance.
The big bone of contention is that the Government is deliberately overpaying for the loans and many people are concerned that the loans are themselves over-valued.
Minister Lenihan has argued that in order for NAMA to break even all that is required is a 10 per cent increase in property values over the next 10 years. Fine Gael’s George Lee takes a different angle, arguing that this implies property values will recover to 60 per cent of their “crazy” peak levels and that this is “economic madness”.
Insider feels Minister Lenihan may win the PR war - Irish people tend to be bullish about property values - but while this is crucial in terms of the immediate objective of getting NAMA set up, it is the economic soundness of the proposal (as disputed by George Lee ) that will determine the success or failure of the project in the long run.
Lying behind the whole NAMA project is of course a vast amount of property. This is an area that is fascinating people. ‘What is the Government going to do with the property?’ they ask.
It is true that the Government is likely to end up owning significant property assets seized from defaulting borrowers. While there has been much talk of social housing and a ‘social dividend’ in the form of recreational land, schools, and hospitals, there are some fascinating issues that have been largely overlooked.
For example the Irish Hotels Federation argue that the State could end up with a significant interest in the hotel market (those hotels built with tax incentives that have flopped commercially! ) and the IHF is concerned that its members will end up in competition with the State. This is a huge issue for the west of Ireland with its large tourist industry.
One final point Insider would make - and this is coming back to the PR aspect - is that the Government, banks, and builders need to learn to be humble in all of this.
Insider’s gut instinct is that the public is not so much angry at the NAMA proposal itself - polling figures show the mass outrage that was predicted has not emerged with the public largely split on the matter - but at the thought that those who got us into the mess are benefiting from it.
The sight of Tom Parlon asking for the builders to be brought into the negotiations on NAMA and not to be bothering with any social dividend is nauseating. The politicians - and Fianna Fáil in particular - need to avoid giving the impression that NAMA is a manna from heaven for them. The public is cynical about the prospect of FF having control of large elements of the property market for very obvious reasons.
In closing Insider would advise the public to approach the debate in the coming weeks in a calm manner but to be engaged and be vigilant